Building and Construction Industry Security of Payment Act 2009 (SA) – Annotated Version

This copy of the Act has been annotated by Fenwick Elliott Grace as an aid to its use in South Australia

An Act to provide for payments for construction work carried out, and related goods and services supplied, under construction contracts; to make related amendments to the Building Work Contractors Act 1995 and the Commercial Arbitration and Industrial Referral Agreements Act 1986; and for other purposes.

(2) The means by which this Act ensures that a person is entitled to receive a progress payment is by granting a statutory entitlement to such a payment regardless of whether the relevant construction contract makes provision for progress payments.

(3) The means by which this Act ensures that a person is able to recover a progress payment is by establishing a procedure that involves—

Notes

41 With regard to the authorities, and to its context in the Act, in my opinion the term “arrangement” in the definition is a wide one, and encompasses transactions or relationships which are not legally enforceable agreements. The distinction in the definition between “a contract” and “other arrangement” is intended by the legislature to be one of substance so that under the Act construction contracts include agreements which are legally enforceable and transactions which are not. Thus in distinguishing between these relationships I understand the legislature intends that “contract” is to be given its common law meaning and that “arrangement” means a transaction or relationship which is not enforceable at law as a contract would be.

The “other arrangement” may include parties other than those included within contractual offers and acceptances; Levadetes v Iberian Artisans [2009] NSWSC 641 at [59].

(a) a date determined by or in accordance with the terms of the contract as the date on which a claim for a progress payment may be made in relation to work carried out or undertaken to be carried out (or related goods and services supplied or undertaken to be supplied) under the contract; or

(b) if the contract makes no express provision with respect to the matter—the last day of the named month in which the construction work was first carried out (or the related goods and services were first supplied) under the contract and the last day of each subsequent named month;

Notes

“a date” Although this definition refers to “a date” (in the singular), it is clear from many of the authorities that many reference dates may arise out of a single contract; typically one a month.

“named month” means means January, February, March, April, May, June, July, August, September, October, November or December in NSW (whence this legislation was derived); see see 21 of the Interpretation Act 1987 (NSW). There is no corresponding provision on the Acts Interpretation Act 1915 (SA) but the intended meaning is obviously the same.

Limits to valid agreement?

In terms, the definition invites the parties to agree what the reference dates should be. But there might be limits to what the parties can agree without falling foul of section 32 (eqivalent to section 34 in the NSW Act). In The Minister for Commerce (formerly Public Works & Services) v. Contrax Plumbing (NSW) Pty. Ltd. & Ors. [2005] NSWCA 142Hodgson JA suggested obiter:

54 On that basis, in my opinion a provision of a contract as to the determination of reference dates, or as to the calculation of the amount of progress payments, could be such as to restrict the operation of the Act within the meaning of s.34, even though the Act in s.8(2)(a) and s.9(a) expressly defers to such provisions. For example, if a contract provided for yearly reference dates, or provided that progress payments should be calculated on the basis of 1% of the value of work done, in my opinion such provisions could be so inimical to s.3(1), s.3(2) and s.8(1) as to be avoided by s.34. If, contrary to the first ground, cl.46 is a provision as to calculation, the relevant parts of cl.42 could still be seen as restricting the operation of the Act. In my opinion, it is preferable not to finally determine this question in a case where it is not necessary to do so.

Notes

Nothing Is “nothing” or “nil” or “zero” an amount for this purpose? Yes; see Barclay Mowlem v Tesrol Walsh Bay[2004] NSWSC 1232at [15]

5—Definition of “construction work”

(1) In this Act—

construction work means any of the following work:

(a) the construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling of buildings or structures forming, or to form, part of land (whether permanent or not);

(b) the construction, alteration, repair, restoration, maintenance, extension, demolition or dismantling of works forming, or to form, part of land, including walls, roadworks, power-lines, telecommunication apparatus, aircraft runways, docks and harbours, railways, inland waterways, pipelines, reservoirs, water mains, wells, sewers, industrial plant and installations for purposes of land drainage or coast protection;

(c) the installation in any building, structure or works of fittings forming, or to form, part of land, including heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply, fire protection, security and communications systems;

(d) the external or internal cleaning of buildings, structures and works, so far as it is carried out in the course of their construction, alteration, repair, restoration, maintenance or extension;

(e) any operation that forms an integral part of, or is preparatory to or is for rendering complete, work of the kind referred to in paragraph (a), (b) or (c), including—

(i) site clearance, earth-moving, excavation, tunnelling and boring; and

(ii) the laying of foundations; and

(iii) the erection, maintenance or dismantling of fences or scaffolding; and

(iv) the prefabrication of components to form part of any building, structure or works, whether carried out on-site or off-site; and

(v) site restoration, landscaping and the provision of roadways and other access works;

(f) the painting or decorating of the internal or external surfaces of any building, structure or works;

(g) other work of a kind prescribed by the regulations for the purposes of this subsection.

(2) Despite subsection (1), construction work does not include the following work:

(a) the drilling for, or extraction of, oil or natural gas;

(b) the extraction (whether by underground or surface working) of minerals, including tunnelling or boring, or constructing underground works, for that purpose;

(c) other work of a kind prescribed by the regulations for the purposes of this subsection.

6—Definition of “related goods and services”

(1) In this Act—

related goods and services, in relation to construction work, means any of the following goods and services:

(a) goods of the following kind:

(i) materials and components to form part of any building, structure or work arising from construction work;

(ii) plant or materials (whether supplied by sale, hire or otherwise) for use in connection with the carrying out of construction work;

(c) goods and services of a kind prescribed by the regulations for the purposes of this subsection.

(2) Despite subsection (1), related goods and services does not include goods or services of a kind prescribed by the regulations for the purposes of this subsection.

(3) In this Act, a reference to related goods and services includes a reference to related goods or services.

Notes

in relation to construction work The phrases “in relation to” is capable of indicating a very broad or wide degree of connection between the subjects that are connected by reference to them, thus work in applying for development consent is sufficiently related to the construction work that may follow, and is thus covered by the Act; Peter’s of Kensington v Seersucker Pty Limited[2008] NSWSC 897.

(1) Subject to this section, this Act applies to any construction contract, whether written or oral, or partly written and partly oral, and so applies even if the contract is expressed to be governed by the law of a jurisdiction other than South Australia.

(2) This Act does not apply to—

(a) a construction contract that forms part of a loan agreement, a contract of guarantee or a contract of insurance under which a recognised financial institution undertakes—

(i) to lend money or to repay money lent; or

(ii) to guarantee payment of money owing or repayment of money lent; or

(b) a construction contract for the carrying out of domestic building work (within the meaning of the Building Work Contractors Act 1995) on such part of any premises that the party for whom the work is carried out resides in or proposes to reside in; or

(c) a construction contract under which it is agreed that the consideration payable for construction work carried out under the contract, or for related goods and services supplied under the contract, is to be calculated otherwise than by reference to the value of the work carried out or the value of the goods and services supplied.

(3) This Act does not apply to a construction contract to the extent to which it contains—

(a) provisions under which a party undertakes to carry out construction work, or supply related goods and services, as an employee (within the meaning of the Fair Work Act 1994) of the party for whom the work is to be carried out or the related goods and services are to be supplied; or

(ab) provisions under which a party undertakes to carry out construction work, or to supply related goods and services, as a condition of a loan agreement with a recognised financial institution; or

(b) provisions under which a party undertakes—

(i) to lend money or to repay money lent; or

(ii) to guarantee payment of money owing or repayment of money lent; or

(iii) to provide an indemnity with respect to construction work carried out, or related goods and services supplied, under the construction contract.

(4) This Act does not apply to a construction contract to the extent to which it deals with—

(a) construction work carried out outside this State; and

(b) related goods and services supplied in respect of construction work carried out outside this State.

(5) This Act does not apply to a construction contract, or class of construction contracts, prescribed for the purposes of this section.

Notes

This section sets up a jurisdictional point, since the question of whether there is a construction contract is a “jurisdictional fact” and an adjudicator’s decision on it is open to review by the court (since absent a construction contract, an adjudicator would have no jurisdiction and any decision would be a nullity); Fifty Property Investments Pty Limited v Barry J O’Mara and Anor [2006] NSWSC 428; Olbourne v Excell Building Corp Pty Limited [2009] NSWSC 349 . Similarly, an adjudicator’s decision on a section 7 exclusion point is not binding; see Cardiacos v Cooper Consulting & Construction Services (Aust) Pty Ltd[2009] NSWSC 938:

“It is for the court to determine whether the facts stipulated in s 7(2)(b) are established because, if they are, the first defendant was not entitled to invoke the Act and the second defendant had no jurisdiction to make his determination (Timbarra Protection Coalition Inc v Ross Mining NL[1999] NSWCA 8; (1999) 46 NSWLR 55 at [40]- [43], [64]-[65];Corporation of the City of Enfield v Development Assessment Commission[2000] HCA 5; (2000) 199 CLR 135 at [28], [33]-[38])”.

“forms part of a loan agreement” These words indicate a relationship that is more than ancilliary or associative;Consolidated Constructions Pty Ltd v Ettamogah Pub[2004] NSWSC 110 at [16]. In ACA v Sullivan & Anor; Austruc v ACA[2004] NSWSC 304 at [34] and Corbett Court v Quasar[2004] NSWSC 1174 at [16] to [21] the construction contracts were not found to be part of the side agreements with the banks, and accordingly the contractacts were not outside the application of the Act.

“resides” The property need not be the owner’s only or even principal residence; Cardiacos v Cooper Consulting & Construction Services (Aust) Pty Ltd[2009] NSWSC 938 para 27. The exclusion does not apply where the contract includes work on a “Granny flat” and other self-contained accommodation for members of the party’s extended family; Oppedisano v Micos Aluminium Systems[2012] NSWSC 53

“proposes to reside” There is no need for such proposal or intention to be communicated; Cardiacos v Cooper Consulting & Construction Services (Aust) Pty Ltd[2009] NSWSC 938. The test is applied as at the time the construction contract is entered into (ibid para 33).

Onus of proof The burden is on a party claiming that a contract is outside the Act to so prove; Walter Construction Group Ltd v CPL (Surry Hills) Pty Ltd [2003] NSWSC 266at [76].

Notes

It is clear that this section creates a statutory right to a progess payment that is in addition to (and typically different from) the contractual right to payment. Thus, where a contract provides that a contractor make his claims on the 1st day of each month, and amounts become (contractually) payable on the 15th day of each month, the reference date is the 1st day of each month, the statutory right to progess payment arises on the 1st day of the month i.e. in such example, a fortnight before the contractual date.

(a) the amount calculated in accordance with the terms of the contract; or

(b) if the contract makes no express provision with respect to the matter—the amount calculated on the basis of the value of construction work carried out or undertaken to be carried out by the person (or of related goods and services supplied or undertaken to be supplied by the person) under the contract.

Notes

Prior periods In Fyntray Constructions Pty Ltd v Macind Drainage & Hydraulic Services Pty Ltd[2002] NSWCA 238 at [53] it was held (on the NSW Act) that it is permissible for a person entitled to a payment claim to include the value of work done in prior periods. The statutory entitlement thus follows the usual contractual regime that, in each month, the contractor’s entitlement is to the the value of the whole of the work done, less the whole of what has been paid.

Limits to valid agreement? See the notes to the definition of the reference date above as to possible limits on what the parties may validly agree.

(b) if the contract makes no express provision with respect to the matter, having regard to—

(i) the contract price for the goods and services; and

(ii) any other rates or prices set out in the contract; and

(iii) any variation agreed to by the parties to the contract by which the contract price, or any other rate or price set out in the contract, is to be adjusted by a specific amount; and

(iv) if any of the goods are defective, the estimated cost of rectifying the defect,

and, in the case of materials and components that are to form part of any building, structure or work arising from construction work, on the basis that the only materials and components to be included in the valuation are those that have become (or, on payment, will become) the property of the party for whom construction work is being carried out.

Notes

“are to valued” means calculated on the criteria established by the contract, and did not mean reached according to mechanisms provided by the contract; Transgrid v Siemens Ltd [2004] NSWCA 395; (2004) 61 NSWLR 521 at [35], John Holland Pty Ltd v Roads and Traffic Authority of NSW[2007] NSWCA 140 at [37] and [38], Plaza West Pty Limited v Simon’s Earthworks (NSW) Pty Limited[2008] NSWCA 279 at [54]. Hence an aqdjudicator is not constrained by what, if anything, has been certified.

“if any of the goods are defective” See below as to set-off generally.

(3) If a progress payment becomes due and payable, the claimant is entitled to exercise a lien in respect of the unpaid amount over any unfixed plant or materials supplied by the claimant for use in connection with the carrying out of theconstruction work for the respondent.

(4) A lien or charge over the unfixed plant or materials existing before the date on which the progress payment becomes due and payable takes priority over a lien under subsection (3).

(5) Subsection (3) does not confer on the claimant any right against a third party who is the owner of the unfixed plant or materials.

money owing, in relation to a construction contract, means money owing for construction work carried out or undertaken to be carried out (or for related goods and services supplied or undertaken to be supplied) under the contract;

pay when paid provision of a construction contract means a provision of the contract—

(a) that makes the liability of 1 party (the first party) to pay money owing to another party (thesecond party) contingent on payment to the first party by a further party (the third party) of the whole or a part of that money; or

(b) that makes the due date for payment of money owing by the first party to the second party dependent on the date on which payment of the whole or a part of that money is made to the first party by the third party; or

(c) that otherwise makes the liability to pay money owing, or the due date for payment of money owing, contingent or dependent on the operation of another contract.

Notes

This section voids both “pay-when-paid” clauses and “pay-if-paid” clauses. It does not void “pay-when-certified” clauses, but the Act overreaches certification provisions in any event: see the notes to section 10 above.

Part 3—Procedure for recovering progress payments

Division 1—Payment claims and payment schedules

13—Payment claims

(1) A person referred to in section 8 who is or who claims to be entitled to a progress payment (the claimant) may serve a payment claim on the person who, under the contract concerned, is or may be liable to make the payment.

(b) that is held under the construction contract by the respondent and that the claimant claims is due for release.

(4) A payment claim may be served only within—

(a) the period determined by or in accordance with the terms of the construction contract; or

(b) the period of 6 months after the construction work to which the claim relates was last carried out (or the related goods and services to which the claim relates were last supplied),

whichever is the later.

(5) A claimant cannot serve more than 1 payment claim in respect of each reference date under the construction contract.

(6) However, subsection (5) does not prevent the claimant from including in a payment claim an amount that has been the subject of a previous claim.

Notes

“or who claims to be”

These words were inserted in the NSW Act by amendment, to overcome the effect of the decision of the Court of Appeal inBrewarrina Shire Council v Beckhaus Civil Pty Limited [2003] NSWCA 4; (2003) 56 NSWLR 576, see Energetech v Sides Engineering & Anor[2005] NSWSC 801 [22]. It seems clear that position here differs from that under section 10 of the Workers’ Liens Act 1893, where it has been said that a notice must be accurate:

In my opinion, a demand for a sum other than the contract price is not a demand within the meaning of section 10(2)(a). It must correctly identify the contract price.

In an appropriate case, it is open to a claimant to submit one payment claim that comprises several invoices; Rail Corporation of NSW v Nebax Constructions [2012] NSWSC 6, Alan Conolly & Co v Commercial Indemnity [2005] NSWSC 339 at [23]

“may serve.. on the person… “

The service has to be on the right party in order to be effective; see e.g. Olympia Group Pty Ltd v Tyrenian Group Pty Ltd[2010] NSWSC 319

“must identify the construction work”

There have been a number of cases as to the extent to which the payment claim must provide detail. In Coordinated Construction Co Pty Ltd v Climatech (Canberra) Pty Ltd(2005) NSWCA 229 at [25] Hodgson JA said:

“In my opinion, the relevant construction work … must be identified sufficiently to enable the respondent to understand the basis of the claim”

In Nepean Engineering Pty Ltd v Total Process Services Pty Ltd (in liq)[2005] NSWCA 409 Santow JA observed that the requirements underlying s 13(2)(a) are satisfied by “a relatively undemanding test” although, as his Honour added, “still one with some content” and that it is an objective and not subjective test as to whether the payment claim sufficiently identifies the construction work the subject of the claim. The evaluation of the sufficiency of the identification takes into account the background knowledge of each of the parties derived from their past dealings and exchanges of documentation.

… a payment claim must be sufficiently detailed to enable the principal to understand the basis of the claim. If a reasonable principal is unable to ascertain with sufficient certainty the work to which the claim relates, he will not be able to provide a meaningful payment schedule. That is to say, a payment claim must put the principal in a position where he is able to decide whether to accept or reject the claim and, if the principal opts for the latter, to respond appropriately in a payment schedule. … That is not an unreasonable price to pay to obtain the benefits of the statute.

In that case, the court decide that a progress claim was not a valid payment claim under the Victorian Act because it was made on the usual contracual basis (i.e. total sum due minus payments to date) but did not identify which work had been paid for. The same result was found in Neumann Contractors P/L v Peet Beachton Syndicate Limited[2009] QSC 376.

The effect of these two cases appears to be that a progress that satisfies all the contractual requirements may nevertheless fail to satisfy the requirement of a payment claim under the Act. If a payment claim fails to satisfy the requirements of the Act, it is a nullity; Brookhollow Pty Ltd v R & R Consultants Pty Ltd[2006] NSWSC 1.

“must state that it is made under this Act” A minor misdescription of the Act will not invalidate the payment claim;Barclay Mowlem Construction Limited v Estate Property Holdings Pty Limited[2004] NSWSC 649, Hawkins Construction v Mac’s Industrial Pipework[2001] NSWSC 815. But a mere statement that an invoice is subject to the Act will not suffice;Jemzone v Trytan[2002] NSWSC 395.

“under section 27(3)”

This is the section entitling a claimant to loss and expense if the respondent removes work from the claimant following a suspension. Such amount includes loss of profit: Urban Traders v Paul Michael[2009] NSWSC 1072

“The subject of a previous claim”. The question of the extent to which the same issues may be agitated in successive adjudications has been the subject of repeated judicial attention. In Dualcorp Pty Ltd v Remo Constructions Pty Ltd[2009] NSWCA 69, the approach was broadly equated to that which applies in litigation:

68 Thus the primary judge here was correct in considering that “principles akin to res judicata” or “abuse of process” were applicable. Consistent with that broad description, I conclude that the principles of issue estoppel were applicable. Primarily because temporal considerations are of particular significance in relation to progress claims, the analogy between an adjudicator’s determination and a completed cause of action which the principles of res judicata would require is an incomplete one. It is best that the applicable principles be recognised to be those of issue estoppel. The more general principle of abuse of process is probably also applicable but it is unnecessary to reach a final view about this. This principle involves a broad concept “insusceptible of a formulation comprising closed categories” (Batistatos v Roads and Traffic Authority of New South Wales [2006] HCA 27; (2006) 226 CLR 256 at [9]) but certainly including within its ambit an attempt to “litigate anew a case which has formerly been disposed of by earlier proceedings” (Walton v Gardiner[1993] HCA 77; (1992-3) 177 CLR 378 at 393).

See also Perform (NSW) Pty Ltd v Mev-Aus Pty Ltd trading as Novatec Construction Systems[2009] NSWSC 416 and The University of Sydney v Cadence Australia Pty Limited & Anor[2009] NSWSC 635 for cases in which reagitation of the same subject matter was barred.

This does not mean that the same issues cannot ever be revisited; in Urban Traders v Paul Michael[2009] NSWSC 1072(cited with approval in Filadelfia Projects Pty Limited v EntirITy Business Services Pty Limited[2009] NSWSC 1468):

41 It does not follow from the decisions to which I have referred that every repetition, in a subsequent payment claim, of a claim made in an earlier payment must amount to an abuse of process. That is so even if that earlier payment claim has been the subject of an adjudicator’s determination. The relevant concept is not abuse of process at large. It is abuse of the processes of the Act: specifically, the processes of the Act designed to ensure that builders and subcontractors (and of course others) received prompt and progressive payment for construction work performed or related goods and services provided. The question of whether there has been an abuse the processes of the Act must take into account relevant provisions of the Act. Specifically:

(1) s 13(6) of the Act recognises that a claimant may include in a payment claim an amount that has been the subject of a previous payment claim; and

(2) s 22(4) of the Act deals, to an extent, with a repeated claim by providing that if particular construction work or related goods and services have been valued by an adjudicator, an adjudicator in a subsequent adjudication application is to give them the same value unless satisfied that the value has changed since that previous determination.

42 Further, whether or not the repetition of a claim amounts to an abuse of process requires consideration of all relevant contextual facts. In addition, it requires consideration of the reasons why the courts intervene to prevent abuse of process. Those reasons include intervention to prevent a person from being vexed by having to reargue an issue already authoritatively decided. Thus, in deciding whether a repetition of a claim amounts to abuse of process, it may be relevant to take into consideration whether, because of fresh claims that are advanced, the respondent will be required to defend itself in any event.

“in accordance with the terms of the construction contract” In Zebicon Pty Ltd v Remo Constructions Pty Ltd[2008] NSWSC 1408 at [33] it was said to be arguable that section 13(4)(a) requires a payment claim to be served in accordance with the relevant provisions of the applicable construction contract.

“the period of 6 months” In NSW the corresponding period is 12 months. In Estate Property Holdings Pty. Limited v. Barclay Mowlem Construction Limited[2004] NSWCA 393 the primary judge noted three possible interpretations of s.13(4)(b): first, as requiring only that some work under the construction contract had been performed in the twelve month period (the “any nail” construction); second, as requiring that some work for which payment was claimed in the payment claim had been performed in the twelve month period; and third, as requiring, in respect of each item for which payment was claimed, that some work had been performed in the twelve month period. On appeal, the second of these interpretations was found to be correct.

Status of a stale claim In Lifestyle Retirement Projects No 2 v Parisi Homes[2005] NSWSC 705 it was held that the requirement to serve a payment in time is not a basic and essential requirement, such that an adjudicator’s determination based on a stale claim is nevertheless effective. See also Energetech Australia v Sides Engineering[2005] NSWSC 1143 to the same effect. But in Security of Payment in the Australian Construction Industry (Jacobs, 3rd Edition) at [95.865] it is suggested that this line may well have to be revisited in light of Nepean Engineering Pty. Ltd. v. Total Process Services Pty. Ltd. (In Liquidation)[2005] NSWCA 409 and Brookhollow Pty Ltd v R&R Consultants Pty Ltd & Anor[2006] NSWSC 1.

An objective test The question of whether a document is a payment claim is an ojective test, to be applied as a whole in in thye context of e.g. any covering letter or other factual matrix; Fernandes Constructions v Tahmoor Coal (trading as Centennial Coal)[2007] NSWSC 381 at [27].

(b) must indicate the amount of the payment (if any) that the respondent proposes to make (the scheduled amount).

(3) If the scheduled amount is less than the claimed amount, the schedule must indicate why the scheduled amount is less and (if it is less because the respondent is withholding payment for any reason) the respondent’s reasons for withholding payment.

(4) If—

(a) a claimant serves a payment claim on a respondent; and

(b) the respondent does not provide a payment schedule to the claimant—

the respondent becomes liable to pay the claimed amount to the claimant on the due date for the progress payment to which the payment claim relates.

Notes

“by providing” It is not clear what the draftsman intended by using the expression “providing” here. It appears that the expression includes, but is not limited to, service (as to which see section 33); see Falgat Constructions Pty. Limited v. Equity Australia Corporation Pty. Limited[2006] NSWCA 259 at [61].

If the claimant is a company, the schedule may be “provided” by service in accordance with s 109x of the Corporations Act 2001 (Cth) ie by

See Falgat Constructions Pty. Limited v. Equity Australia Corporation Pty. Limited[2006] NSWCA 259. In the case of postage, section 29 of the Acts Interpretation Act 1901 (Cth) gives a rebuttable presumption which would have effect as to the time of provision of a payment schedule, but which would be displaced if it is proved when the payment schedule actually arrived at the registered office to which it is addressed.

“proposes to make”

If a document is marked “without prejudice” and contains an offer of compromise, it will not be a valid payment schedule;National Vegetation Management Solutions P/L v Shekar Plant Hire P/L [2010] QSC 3

“Must indicate why” May the indication be by way of incorporation by reference? Yes; see Perform (NSW) Pty Ltd v MEV-AUS Pty Ltd & Anor[2009] NSWCA 157 at [50] overturning the first instance decision. But note that the the reference must be sufficient for the claimant to know which of the grounds previously advanced were now relied on; ibid at [53].

“the respondent’s reasons for withholding payment”

There appears to be no limit on what reasons may be included.

Whilst it may be thought unnecessary for the respondent to include reasons which go to jurisdiction (since in such circumstances the adjudication process is a nullity), yet it may be wise, since it has been suggested obiter in Oppedisano v Micos Aluminium Systems [2012] NSWSC 53 that judicial review might be refused on discretionary grounds if the respondent waits until after the determination has been registered as a judgment before taking a jurisdictional point.

(3) A notice referred to in subsection (2)(b) must state that it is made under this Act.

(4) If the claimant commences proceedings under subsection (2)(a)(i) to recover the unpaid portion of the claimed amount from the respondent as a debt—

(a) judgment in favour of the claimant is not to be given unless the court is satisfied of the existence of the circumstances referred to in subsection (1); and

(b) the respondent is not, in those proceedings, entitled—

(i) to bring a cross-claim against the claimant; or

(ii) to raise a defence in relation to matters arising under the construction contract.

Notes

Claimant’s election Once the claimant has elected which route to take under s 15(2) he cannot later change his mind;Vince Schokman & Anor v Xception Construction Pty Limited and Anor[2005] NSWSC 297 at [27]. In NSW, claimants often elect to adjudicate, since it is typically quicker to go through the adjudication process and register the decision as a judgment than it is to obtain obtain an appointment for a summary judgment application uynder s 15(2)(a)(i).

“not…entitled…to raise a defence”

This does not prevent defences on other matters. Thus,. for example, the respondent may raise a defence based on the non-existence of a construction contract (Mansouri & Anor v Aquamist P/L [2010] QCA 209), or estoppel (Neumann Contractors Pty Ltd v Traspunt No 5 Pty Ltd[2010] QCA 119) .

16—Consequences of not paying claimant in accordance with payment schedule

(a) the claimant has notified the respondent, within the period of 20 business days immediately following the due date for payment, of the claimant’s intention to apply for adjudication of the payment claim; and

(b) the respondent has been given an opportunity to provide a payment schedule to the claimant within 5 business days after receiving the claimant’s notice.

(c) in the case of an application under subsection (1)(a)(i)—must be made within 15 business days after the claimant receives the payment schedule; and

(d) in the case of an application under subsection (1)(a)(ii)—must be made within 20 business days after the due date for payment; and

(e) in the case of an application under subsection (1)(b)—must be made within 15 business days after the end of the 15 day period referred to in subsection (2)(b); and

(f) must identify the payment claim and the payment schedule (if any) to which it relates; and

(g) must be accompanied by such application fee (if any) as may be determined by the authorised nominating authority; and

(h) may contain such submissions relevant to the application that the claimant chooses to include.

(4) The amount of any such application fee must not exceed the amount (if any) determined by the Minister.

(5) A copy of an adjudication application must be served on the respondent concerned.

(6) It is the duty of an authorised nominating authority to which an adjudication application is made to refer the application to an adjudicator (being a person who is eligible to be an adjudicator as referred to in section 18) as soon as practicable.

“adjudication of a payment claim”

There can be one only application for adjudication of any one payment claim; Rail Corporation of NSW v Nebax Constructions [2012] NSWSC 6 at [43].

(4) The respondent cannot include in the adjudication response reasons for withholding payment unless those reasons have already been included in the payment schedule provided to the claimant.

(5) A copy of the adjudication response must be served on the claimant.

“cannot include in the adjudication response reasons …”

This does not prevent the respondent from raising grounds on which it is asserted that the adjudicator does not have jurisdiction to make a determination; Rail Corporation of NSW v Nebax Constructions [2012] NSWSC 6 at [38], Olympia Group (NSW) Pty Ltd v Hansen Yuncken Pty Ltd [2011] NSWSC 165 at [11]

(i) the date on which an adjudication response is lodged with the adjudicator; or

(ii) if an adjudication response is not lodged with the adjudicator on or before the last date on which the response may be lodged with the adjudicator under section 20(1)—that date; or

(iii) if the respondent is not entitled under section 20 to lodge an adjudication response—the date on which the respondent receives a copy of the adjudication application; or

(b) within any further time that the claimant and the respondent may agree.

(4) For the purposes of proceedings conducted to determine an adjudication application, an adjudicator—

(a) may request further written submissions from either party and must give the other party an opportunity to comment on those submissions; and

(b) may set deadlines for further submissions and comments by the parties; and

(c) may call a conference of the parties; and

(d) may carry out an inspection of any matter to which the claim relates.

(5) If any such conference is called, it is to be conducted informally and the parties are not entitled to legal representation.

(6) The adjudicator’s power to determine an application is not affected by the failure of either or both of the parties to make a submission or comment within time or to comply with the adjudicator’s call for a conference of the parties.

(c) the payment claim to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the claimant in support of the claim;

(d) the payment schedule (if any) to which the application relates, together with all submissions (including relevant documentation) that have been duly made by the respondent in support of the schedule;

(e) the results of any inspection carried out by the adjudicator of any matter to which the claim relates.

(3) The adjudicator’s determination must—

(a) be in writing; and

(b) include the reasons for the determination (unless the claimant and respondent have both requested the adjudicator not to include those reasons in the determination).

(4) If, in determining an adjudication application, an adjudicator has, in accordance with section 10, determined—

the adjudicator (or any other adjudicator) is, in any subsequent adjudication application that involves the determination of the value of that work or those goods and services, to give the work (or the goods and services) the same value as that previously determined unless the claimant or respondent satisfies the adjudicator concerned that the value of the work (or the goods and services) has changed since the previous determination.

(5) If the adjudicator’s determination contains—

(a) a clerical mistake; or

(b) an error arising from an accidental slip or omission; or

(c) a material miscalculation of figures or a material mistake in the description of a person, thing or matter referred to in the determination; or

(d) a defect of form,

the adjudicator may, on the adjudicator’s own initiative or on the application of the claimant or the respondent, correct the determination.

Notes

the amount of the progress payment (if any) to be paid It seems clear that adjudicator is charged with determining what is payable as a matter of law. See section 9 above.

Set-off The conventional view is that the respondent is entitled to rely upon any set-off he may have available to him, since a set-off operates to reduce or extinguish a liability to pay (see Downsouth Constructions v Jigsaw Corporate Childcare [2007] NSWSC 597 at [59]. Accordingly, an adjudicator must consider any set-off indicated in a payment schedule. Such set-off may arise in contract, common law and/or equity. However,

A decision by an adjudicator not to give credit for a set-off is likely to constitute a mere error of law which does not invalidate his decision; see Perform (NSW) Pty Ltd v Mev-Aus Pty Ltd [2009] NSWCA 157,

In Brodyn Pty. Ltd. t/as Time Cost and Quality v. Davenport & Anor[2004] NSWCA 394 at [74], Hodgson J said that the adjudicator was right to disregard the respondent’s cross claim for damages for delay, and

A suggestion was made by Young JA in Perform (NSW) Pty Ltd v Mev-Aus Pty Ltd [2009] NSWCA 157, albeit obiter, non-definitive and minority, that equitable set-offs should not be considered by adjudicators.

“the adjudicator is to consider the following matters only” Generally, the scheme of the Act is that the respondent is limited to matters raised in his payment schedule. However, it seems that there is an exception in respect of issues as to the construction of the Act or the contract, or indeed the existance of the contract; in The Minister for Commerce (formerly Public Works & Services) v. Contrax Plumbing (NSW) Pty. Ltd. & Ors. [2005] NSWCA 142 [34] – [36]:

It is true that paragraph (d) of s.22(2) limits the submissions of the respondent that can be considered under that paragraph to submissions duly made by the respondent in support of the payment schedule; and in my opinion, that does have the effect of excluding, from consideration under that paragraph, reasons included in the adjudication response that were not included in the payment schedule.

35 However, paragraphs (a) and (b) of s.22(2) require the adjudicator to consider the provisions of the Act and the provisions of the construction contract; and in my opinion, that entitles and indeed requires the adjudicator to take into account any considerations (other than considerations arising from facts and circumstances of the particular case not otherwise before him or her) that he or she thinks relevant to the construction of the Act, the construction of the contract, and the validity of terms of the contract having regard to provisions of the Act. Thus, in my opinion, if an adjudicator comes to know of submissions of a respondent that he or she thinks to be relevant to these questions (not being submissions based on facts and circumstances of the particular case not otherwise before him or her), he or she can take them into account under paragraphs (a) and (b), even if they cannot be considered under paragraph (d).

36 Similarly, in my opinion, an adjudicator could take into account a contention of an applicant that a term of the contract is void by reason of s.34, when considering matters under paragraphs (a) and (b), even if that contention could not be taken into account under paragraph (c).

Where there is no contested adjudication process, what must an adjudicator do in order to comply with the requirements of s.22(2)? It seems that he should take a middle course between rubber stamping the claim, and playing devil’s advocate. In Brookhollow Pty Ltd v R&R Consultants Pty Ltd & Anor[2006] NSWSC 1, Palmer J said:

Must the adjudicator examine all of the provisions of the contract and all of the provisions of the Act with a critical eye to see whether the claim is supportable? Or, may the adjudicator take the view that as the claim is “undefended”, he or she may “rubber stamp” the claim and make a determination against the respondent “in default of a defence”.

61 In my opinion, neither position is correct. Section 22(2) requires the adjudicator to give consideration to the matters stated, to the extent applicable, whether the payment claim is “defended” or “undefended” in the adjudication process. That means that where the respondent is not a participant in the adjudication whether by preclusion under s.20(2A) or otherwise, the adjudicator must still consider “the provisions of the Act”, “the provisions of the construction contract from which the application arose”, the payment claim and the result of an inspection, if any.

62 Because an adjudication determination can have drastic financial consequences, s.22(2) requires the adjudicator to see that, even when the respondent does not participate, the process is not abused. That does not mean, however, that the adjudicator must play devil’s advocate on behalf of the absent respondent. The adjudicator is not required to test the payment claim and the adjudication application for all possible defects and non-compliances with all or any of the provisions of the Act and all or any of the terms of the contract. In Holmwood at para 50 Brereton J said that the requirements of s.22(2)(b) to consider the provisions of the contract did not mean that:“…in each adjudication the adjudicator must consider every provision of the contract – any more than the requirement in s.22(2)(a) to consider the provisions of the Act has the effect that in each adjudication the adjudicator must consider every provision of the Act; both the paragraphs are to be read as requiring consideration of the provisions only to the extent that they are relevant to the adjudication application in question. In other words, the adjudicator is not required to consider provisions of the Act or the contract which have no bearing on, or relationship to, the adjudication application under consideration. This follows from the stated function of the considerations required by s.22(2) – which is, as its opening words express, “in determining an adjudication application” – and from the great inconvenience without utility which any other construction would involve.”

66 The extent to which an adjudicator must give reasons for the determination in accordance with s.22(3)(b) reflects the extent of his or her duty to give consideration to the matters required by s.22(2). In a fully contested adjudication in which several issues have been raised, the adjudicator’s reasons should demonstrate that he or she has endeavoured in good faith to consider those issues, in compliance with the requirements of s.22(2)(c) and (d).

67 On the other hand, when the payment claim is undefended in the adjudication process so that no issues have been raised and contested, the adjudicator’s reasons may, permissibly, be quite brief. They should show in general terms that the adjudicator has considered the payment claim and the contract.

In Clyde Bergemann v Varley Power [2011] NSWSC 1039, McDougall J said “The reasons should show that the adjudicator has turned his or her mind to the dispute entrusted to his or her determination, and has addressed the issues raised by the parties in support of or opposition to the payment claim. There is no requirement that they be lengthy, elaborate or detailed.”

The basic and essential requirements In Brodyn Pty Ltd v Davenport& Anor[2004] NSWSC 394 Hodgson identified the conditions laid down for the existence of an adjudicator’s determination:

The basic and essential requirements appear to include the following:

1. The existence of a construction contract between the claimant and the respondent, to which the Act applies (ss.7 and 8).

2. The service by the claimant on the respondent of a payment claim (s.13).

3. The making of an adjudication application by the claimant to an authorised nominating authority (s.17).

4. The reference of the application to an eligible adjudicator, who accepts the application (ss.18 and 19).

5. The determination by the adjudicator of this application (ss.19(2) and 21(5)), by determining the amount of the progress payment, the date on which it becomes or became due and the rate of interest payable (ss.22(1)) and the issue of a determination in writing (ss.22(3)(a)).

A failure of one of these requirements is fatal to the validity of a determination. But note that, following Chase Oyster Bar v Hamo[2010] NSWCA 190 a failure of one of these conditions is not the only basis upon which a decision may be challenged – it may also be challenged by way of judicial review, on any of the grounds available for certiorari.

The obligation to act in good faith requires that adjudicators deal intellectually with the disputes that parties have framed, and deal with those disputes in a way that is reasoned, not perverse, arbitrary or capricious; Power Serve v Powerline’s Clearing Group [2011] NSWSC 1180 at [12], Clyde Bergemann v Varley Power [2011] NSWSC 1039 at [60] to [64].

(b) if the adjudicator determines a later date under section 22(1)(b)—that later date.

(2) If an adjudicator determines that a respondent is required to pay an adjudicated amount, the respondent must pay that amount to the claimant on or before the relevant date.

“the respondent must pay”

This requirement may be overreached by Federal law, and in an appropriate case, where a respondent can show a sufficient case that the construction contract has been induced by deceptive or misleading conduct within the meaning of the Australian Consumer Law, then the court may grant injunctive relief restraining any enforcement of this obligation, or any further attempt to make use of the adjudication procedure; Birdon Pty Ltd v Houben Marine Pty Ltd (No 2) [2011] FCA 1313

(2) A notice under subsection (1)(b) must state that it is made under this Act.

(3) An adjudication certificate must state that it is made under this Act and specify the following matters:

(a) the name of the claimant;

(b) the name of the respondent who is liable to pay the adjudicated amount;

(c) the adjudicated amount;

(d) the date on which payment of the adjudicated amount was due to be paid to the claimant.

(4) If an amount of interest that is due and payable on the adjudicated amount is not paid by the respondent—

(a) the claimant may request the authorised nominating authority to specify the amount of interest payable in the adjudication certificate; and

(b) the amount so specified is to be added to (and becomes part of) the adjudicated amount.

(5) If the claimant has paid the respondent’s share of the adjudication fees in relation to the adjudication but has not been reimbursed by the respondent for that amount (the unpaid share)—

(a) the claimant may request the authorised nominating authority to specify the unpaid share in the adjudication certificate; and

(b) the amount so specified is to be added to (and becomes part of) the adjudicated amount.

25—Filing of adjudication certificate or costs certificate as judgment debt

(1) An adjudication certificate may be filed as a judgment for a debt in a court of competent jurisdiction and is enforceable accordingly.

(2) An adjudication certificate cannot be filed under this section unless it is accompanied by an affidavit by the claimantstating that the whole or a part of the adjudicated amount has not been paid at the time the certificate is filed.

(3) If the affidavit indicates that part of the adjudicated amount has been paid, the judgment is for the unpaid part of that amount only.

(4) If the respondent commences proceedings to have the judgment set aside, the respondent—

(a) becomes entitled to withdraw the previous adjudication application under subsection (2); or

(b) is notified by the adjudicator that he or she has withdrawn from the adjudication.

(5) This Division applies to a new application referred to in this section in the same way as it applies to an application under section 17.

“Fails to determine the application with the time allowed”

There is such a failure if the court has determined on a judicial review that a determination is void, because, for example, of a failure to observe the rules of natural justice; Cardinal Project Services v Hanave[2010] NSWSC 1367 at para 24.

“within 5 business days”

Time starts running from the time allowed for the original adjudication determation, and not from the date when it is declared void by the court; Cardinal Project Services v Hanave[2010] NSWSC 1367 at para 43.

(2) The right conferred by subsection (1) exists until the end of the period of 3 business days immediately following the date on which the claimant receives payment for the amount that is payable by the respondent under section 15, 16 or23(2).

(3) If the claimant, in exercising the right to suspend the carrying out of construction work or the supply of related goods and services, incurs loss or expenses as a result of the removal by the respondent from the contract of a part of the work or supply, the respondent is liable to pay the claimant the amount of such loss or expenses.

(4) A claimant who suspends construction work (or the supply of related goods and services) in accordance with the right conferred by subsection (1) is not liable for loss or damage suffered by the respondent, or by a person claiming through the respondent, as a consequence of the claimant not carrying out that work (or not supplying those goods and services) during the period of suspension.

Division 4—General

29—Nominating authorities

(1) Subject to the regulations, the Minister—

(a) may, on application made by any person, authorise the applicant to nominate adjudicators for the purposes of this Act; and

(b) may withdraw any authority so given.

(2) The Minister may—

(a) limit the number of persons who may, for the time being, be authorised under this section; and

(b) refuse an application under subsection (1) if authorising the applicant would result in any such number being exceeded.

(3) A person—

(a) whose application for authority to nominate adjudicators for the purposes of this Act is refused (otherwise than on the ground referred to in subsection (2)(b)); or

(b) whose authority to nominate adjudicators is withdrawn,

may apply to the Administrative and Disciplinary Division of the District Court for a review of the Minister’s decision to take that action.

(b) each liable to contribute to the payment of such fee in equal proportions or in such proportions as the adjudicator to whom the adjudication application is referred may determine.

(7) An authorised nominating authority must provide the Minister with such information as may be requested by the Minister in relation to the activities of the authority under this Act (including information as to the fees charged by the authority under this Act).

(a) such amount, by way of fees and expenses, as is agreed between the adjudicator and the parties to the adjudication, or

(b) if no such amount is agreed—the hourly rate (if any) prescribed by regulation in addition to reasonable expenses; or

(c) if no such amount is agreed and no hourly rate has been prescribed—such amount, by way of fees and expenses, as is reasonable having regard to the work done and expenses incurred by the adjudicator.

(2) The claimant and respondent are jointly and severally liable to pay the adjudicator’s fees and expenses.

(3) The claimant and respondent are each liable to contribute to the payment of the adjudicator’s fees and expenses in equal proportions or in such proportions as the adjudicator may determine.

(4) An adjudicator is not entitled to be paid fees or expenses in connection with the adjudication of an adjudication application if he or she fails to make a decision on the application (otherwise than because the application is withdrawn or the dispute between the claimant and respondent is resolved) within the time allowed by section 21(3).

(5) Subsection (4) does not apply—

(a) in circumstances in which an adjudicator refuses to communicate his or her decision on an adjudication application until his or her fees and expenses are paid; or

(b) in such other circumstances as may be prescribed for the purposes of this section.

“It is in my view entirely inappropriate for adjudicators (who must know, or ought to know, the relevant requirements of the Act) to insist on payment of fees where, if s 29 (4) has operated, they have no entitlement”; Allpro v Micos [2010] NSWSC 453

31—Protection from liability for adjudicators and authorised nominating authorities

(1) An adjudicator is not personally liable for anything done or omitted to be done in good faith—

(a) in exercising the adjudicator’s functions under this Act; or

(b) in the reasonable belief that the thing was done or omitted to be done in the exercise of the adjudicator’s functions under this Act.

(2) No action lies against an authorised nominating authority or any other person with respect to anything done or omitted to be done by the authorised nominating authority in good faith—

(a) in exercising the nominating authority’s functions under this Act; or

(b) in the reasonable belief that the thing was done or omitted to be done in the exercise of the nominating authority’s functions under this Act.

“no action lies”

It is nevertheless common for ANAs and adjudicators to be joined as defendants in challenge proceedings, and indeed this is a requirement by Rule 201 of the Supreme Court Rules. The usual and proper course in these circumstances is for the ANA and/or adjudicator ) is to file appearance whereby they submit save as to costs; Rail Corporation of NSW v Nebax Constructions [2012] NSWSC 6

(2) Service of a notice that is sent to a person’s ordinary place of business, as referred to in subsection (1)(c), is taken to have been effected when the notice is received at that place.

(3) The provisions of this section are in addition to, and do not limit or exclude, the provisions of any other law with respect to the service of notices.

Notes

may be served The section is facilative, not mandatory. In Falgat Constructions Pty Limited v Equity Australia Corporation Pty Limited, CA 40804, 19 September 2006, Hodgson J at [58] stated:

In my opinion it is clear that if a document has actually been received and come to the attention of a person to be served or provided with a document or of a person to deal with such document on behalf of a person or corporation to be served or provided with a document it does not matter whether or not any facultative regime has been complied with. (see Howship Holdings Pty Limited v Leslie (1996) 41 NSWLR 542; Mohamed v Farah (2004) NSWSC 482 at 42 to 44) In such a case there has been service provision and receipt.

Service on agents It has been held that service on an agent is not adequate (Emag Constructions Pty Limited v Highrise Concrete Contractors (Aust) Pty Limited[2003] NSWSC 903), even where the agent is a solicitor with instructions to accept service (Abigroup Contractors Pty Ltd v River Street Developments Pty Ltd[2006] VSC 425 at [45])

Payment schedule Note that section 13 requires a payment schedule to be “provided”; see the notes to that section above to the effect that section 33 does apply to the provision ofpayment schedules.

Other law Note section 33 of the Acts Interpretation Act (SA) which provides:

(a) that the service is effected by properly addressing, prepaying and posting a letter or packet containing thedocument; and
(b) that, unless the contrary is proved, service will be taken to have been effected at the time at which the letter or packet would be delivered in the ordinary course of post.

See also s 109X of the Corporations Act 2001 (Cth) noted under section 14 above.

35—Regulations

(1) The Governor may make such regulations as are contemplated by, or necessary or expedient for the purposes of, this Act.

(2) The regulations may, either unconditionally or subject to conditions, exempt—

(a) a specified person or class of persons; or

(b) a specified matter or class of matters,

from the operation of this Act or of specified provisions of this Act.

(3) Regulations under this Act may—

(a) be of general application or limited application; or

(b) make different provision according to the matters or circumstances to which they are expressed to apply.

2—Amendment of section 30—Payments under or in relation to domestic building work contracts

(1) Section 30(1)—delete “the payment”

(2) Section 30(1)(a)—before “constitutes” insert:

the payment

(3) Section 30(1)—after paragraph (a) insert:

(ab) the person is entitled to the payment under the Building and Construction Industry Security of Payment Act 2009; or

(4) Section 30(1)(b)—before “is of a” insert:

the payment

(5) Section 30(2)—delete “paragraph (a) or (b)” and substitute:

paragraph (a), (ab) or (b)

(6) Section 30(3)—delete “unless the building work contractor has requested the payment by notice in writing given to the building owner or an agent authorised to act on behalf of the building owner.” and substitute:

unless—

(a) the building work contractor has requested the payment by notice in writing given to the building owner or an agent authorised to act on behalf of the building owner; or

(b) the domestic building work contract is a contract to which the Building and Construction Industry Security of Payment Act 2009 applies (in which case the provisions of that Act relating to progress payments apply).